M&As Slow for Aussie Gold Miners

October 28th, 2015 by

Source: libertygibbert.com

Source: libertygibbert.com

Australia has been in what feels like a perpetual gold boom since the late 19th century. Not unlike the United States during the same time period, much of Western Australia was developed and settled because of gold rushes. The gold fever hasn’t waned much in the time since, as Australia continues to be home to many of the most active gold mining operations in the world.

After a rash of mergers and acquisitions in the Aussie gold mining sector during the last two years, the consolidation of miners finally seems to be slowing down—for now.

 

Corporate Consolidation

Several of the major miners in Australia embarked upon huge buying sprees of their junior counterparts in order to grow operations and achieve greater economies of scale. According to Reuters,

“So far this year there have been some two-dozen announced deals in gold mining worth more than $1.7 billion, compared with about $2.2 billion in 2013 and 2014 combined, according to Reuters data.” [emphasis added]

Source: australian-gold.com

Source: australian-gold.com

Two of the top three largest gold miners in Australia, Northern Star Resources Ltd. (ASX:NST) and Evolution Mining Ltd. (ASX:CAH) have not only been absorbing smaller junior minors and exploration companies, but have each also played the role of opportunist. Thanks to chronically low gold prices in terms of the U.S. dollars, Barrick Gold (NYSE, TSX:ABX) has been forced to sell off its operations in the country. Its only remaining stake in an Australian mine is its joint project with Newmont Mining (NYSE, SWX:NEM; TSX:NMC) at the massive Super Pit Mine.

Evolution and Northern Star have been the major beneficiaries of Barrick’s woes, snatching up the projects at attractive prices. Each has also been helped by the weaker Aussie dollar, which has helped fuel higher gold prices in terms of the A$. Evolution has been the slightly more active of the two, developing or acquiring seven different gold mining projects this year. This helped vault them above Northern Star as the country’s second-biggest gold miner after Newcrest Mining (ASX, SWX:NCM; TSX:NM).

Rising Costs

The number and pace of this M&A activity seems to be settling down after nearly $4 billion in deals in the gold mining sector alone over the last three years.

aussie_dollarThe slowdown is less a function of drying up opportunities—although, one assumes, the aggressive acquisitions of more than 20 mining firms could play some role—and more about rising costs. It’s merely the cost-effective and economically attractive opportunities that have begun to vanish.

Rather than expanding their capital holdings, the major miners are now pivoting toward focusing on “integrating existing assets and getting them to perform successfully.” This is a natural evolution for growing business. With the additional boost of a softer currency, we will see how these Aussie gold miners fare in the long-term.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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